Tuesday, November 18, 2008

Remember Human Nature!

Richard Larsen writes in Ventura County Star (Camarillo, California) HERE: ‘Adam Smith must be turning over in his grave’

“What these free-market mystics believe in is the ideal, and that can work in theory. Even communism in its ideal form could work, except for the one tiny thing that plagues every ideal — people. People find ways to alter an original concept and use it to their advantage and against others, a sort of reverse redistribution of wealth — from the great masses to the wealthy few.

And capitalism and communism have been two concepts heavily altered by the people who embraced them. Communism failed. Do people really want to consider capitalism and its free-market system so sacrosanct that any failings go unchecked?

The capitalism of today is markedly different from the capitalism espoused by Adam Smith, a Scottish moral philosopher and a pioneer in political economy. Though he never used the word "capitalism" in his "An Inquiry Into the Nature and Causes of the Wealth of Nations," published in 1776, Smith is considered by many to be the father of capitalism.

The core theory of capitalism is that a vibrant marketplace with the means of production and distribution privately owned would create jobs, quality products and a sustainable economy. Competition would assure low prices while a strong work ethic and pride of ownership would assure adequate wealth for all.”

CommentRichard Larsen is right: Adam Smith did not write about capitalism (a word invented in 1854) and the fact that some people believe him to be the father of capitalism does not a fact make, in fact!

There was a lot more to the market commerce that Adam Smith wrote about than is generally passed for ‘free markets’ by propagandists of the status quo.

Smith’s works were embedded in the society of Britain in the mid-18th century, of which he had considerable criticisms, many of which have not been acted upon even by the 21st century.

We are still debating in serial world conferences about freeing world trade from its current levels of protectionism, of which the most advanced market economies continue to be powerful protectors of their own trades!

David Hume’s ‘jealousy of trade’ still stalks the lands of the richest countries on earth, and, it must be said, are alive and well in the richest and poorest of the developing countries too.

Cartels of oil producers survive (what happened to the theory of cartel instability?); administered exchange rates are sometimes set by bureaucrats not by markets; vast government spending and revenue raising agenda continue to dominate the world’s economies on a scale never remotely akin to ‘big spenders’ like 18th-century Europe in both secular democracies and pretend ‘democracies’, and outright tyrannies too.

And on the role of real ‘people’ – strangely absent from most modern economic models because aside by ‘rational’, ‘consistent’ and ‘predictable’ Home economicus, a bogus ideal invented in the late 19th century and perfected into almost religious belief in the mid-20th century – assumed away.

People, real people, feature in all of Adam Smith’s works and their influence on events is, to coin a phrase, highly visible, and without illusions on Smith’s part, he reported that if left to themselves they still have to contend with those among them who interpret their self interest in a manner not allowed for in modern economic models, not out of their ignorance, but precisely driven by their native intelligence.

That’s why Adam Smith made such a play about the need for justice in any society, barbarian or opulent.

I was at dinner last night with three distinguished economists and I remarked during one conversation that human nature is the one universal constant we can be certain of when contemplating any economy, including its forms of government.